Application of Linear Programming to Game Theory in Finance

Abstract

The study examines the application of linear programming to game theory in finance using how the Telecommunication firms determine the optimal strategy from television and radio advertisements given that each company seeks to gain the largest market share. The methodology used involved a Game Theoretic approach and linear programming. The result of the analysis showed that for MTN to maintain its position as the leader in the industry, it should invest 0% of its M billion Naira in Television Advertisement and 100% in Radio Advertisement when competing with Airtel, Globacom and 9Naija. This will yield a pay-off of ₦ 9M billion. Findings revealed that for Globacom to gain the largest market share in the industry, it should invest 0% of her ₦N in Television Advertisement and 100% in Radio Advertisement when competing with MTN. This will produce a benefit of 9N billion Naira. The results also showed the optimal resource allocations for Airtel and Globacom for each firm to gain the largest market share in the industry when competing with MTN. Findings also revealed the pay-offs for both firms when they compete with MTN. It is therefore recommended that Nigerian Telecommunication firms use Game Theory in optimizing resource allocation between strategies.